The Federal Reserve sees inflation moving up towards its 2% annual target but doesn’t see runaway price pressure, said Philadelphia Fed President Patrick Harker on Tuesday.
“At this point, we don’t expect inflation to be running out of control,” Harker said, during a webinar hosted by the Delaware State Chamber of Commerce.
“We have time to move because we’re not seeing inflation running out of control. If it does, we’ll act accordingly,” he said.
The consumer price index rose 0.6% in March, the largest month-on-month gain since 2012. The 12-month rate rose to 2.6%.
Read: U.S. consumer prices surge in March
The Fed expects its favorite measure, the personal consumption expenditure index, to accelerate to a 2.4% annual rate this year before retreating next year.
Many economists are worried that the massive fiscal stimulus passed by Congress earlier this year will cause cause the economy to overheat, sending consumer prices significantly higher.
The answer to this debate won’t come until later in the year. For now inflation could move as high as a 3.7% annual rate in May as weak readings from last spring, as the pandemic hit, drop out of the measure.
Fed Chairman Jerome Powell told CBS News’ “60 Minutes” program on Sunday that the Fed will wait to see inflation before it starts to exit from its loose monetary policy stance. In prior economic recoveries, the Fed has removed accommodation based on forecasts of higher prices.
Keeping its foot on the monetary policy gas raises the risk the central bank might be late to raise interest rates, which means it would have to raise rates higher to push down inflation.
In his remarks, Harker backed Powell’s go-slow approach.
“While the economic situation is improving, recovery is still in its early stages, and there’s no reason to withdraw support yet,” Harker said.
Harker said the recovery remains a little fragile.
The pause in the use of the Johnson & Johnson vaccine may fuel more vaccine hesitancy, he noted.
“It’s a very fragile recovery with variants that we’re seeing. Job one is to control this virus. So right now pulling back accommodation for me doesn’t make sense,” he said.
Tech stocks were higher Tuesday but the Dow Jones Industrial Average
DJIA,
-0.42%
was hit by the J&J news.
